Central bankers around the world are lifting interest rates at an aggressive clip as rapid inflation persists and seeps into a broad array of goods and services, setting the global economy up for a lurch toward more expensive credit, lower stock and bond values and — potentially — a sharp pullback in economic activity.
It’s a moment unlike anything the international community has experienced in decades, as countries around the world try to bring rapid price increases under control before they become a more lasting part of the economy.
Inflation has surged across many advanced and developing economies since early 2021 as strong demand for goods collided with shortages brought on by the pandemic. Central banks spent months hoping that economies would reopen and shipping routes would unclog, easing supply constraints, and that consumer spending would return to normal. That hasn’t happened, and the war in Ukraine has only intensified the situation by disrupting oil and food supplies, pushing prices even higher.
is expected to make its first rate increase since 2011, one that officials have signaled will most likely be only a quarter point but will probably be followed by a larger move in September.
Other central banks have begun moving more aggressively already, with officials from Canada to the Philippines picking up the pace of rate increases in recent weeks amid fears that consumers and investors are beginning to expect steadily higher prices — a shift that could make inflation a more permanent feature of the economic backdrop. Federal Reserve officials have also hastened their response. They lifted borrowing costs in June by the most since 1994 and suggested that an even bigger move is possible, though several in recent days have suggested that speeding up again is not their preferred plan for the upcoming July meeting and that a second three-quarter-point increase is most likely.
As interest rates jump around the world, making money that has been cheap for years more expensive to borrow, they are stoking fears among investors that the global economy could slow sharply — and that some countries could find themselves plunged into painful recessions. Commodity prices, some of which can serve as a barometer of expected consumer demand and global economic health, have dropped as investors grow jittery. International economic officials have warned that the path ahead could prove bumpy as central banks adjust policy and as the war in Ukraine heightens uncertainty.
blog post on Wednesday. Ms. Georgieva argued that central banks need to react to inflation, saying that “acting now will hurt less than acting later.”